Deputy Commissioner of Income tax, Bangalore V. M/s Vodafone south Ltd, Bangalore

MA 73/BANG/2015

• Counselvise Citation: [2016] 124 COUNSELVISE.COM (IT) 4414 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-01-2016
• Assessment Year: misc
• Appeal Filed On: 25-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K ARVIND
• Keywords: Business income; Residential status
• Section: 5(2); 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE S HRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER M.P. NOS.73/BANG/2015 & 11 TO 14/BANG/2016 (IN I.T . (I.T) A. NO S . 1814 TO 1818 & 734 /BANG/20 13) (ASSESSMEN T YEAR S : 20 08 - 09 TO 2012 - 13 ) DY. COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION), CIRCLE 1(1), BANGALORE. . PETITIONER . VS. M/S. VODAFONE SOUTH LIMITED, MARUTHI INFOTECH CENTRE, 11/1, 12/1, KORAMANGALA, AMAR JYOTI LAYOUT, BANGALORE - 560 071 . .. RESPONDENT. PETITIONER BY : SHRI K. ARVIND, STANDING COUNSEL. R E SPONDENT BY : SHRI RAJAN VORA, C.A. DATE OF H EARING : 01.07.2016. DATE OF P RONOUNCEMENT : 20.07 .201 6 . O R D E R PER SHRI VIJAY P AL RAO, J . M . : BY WAY OF THESE FIVE MISCELLANEOUS PETITIONS, THE REVENUE IS SEEKING RECTIFICATION IN THE COMPOSITE ORDER OF THIS TRIBU N AL DT.30. 12.2014 WHEREBY THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2008 - 09 TO 2012 - 13 WERE DISPOSED OFF. 2 M.P. NOS.73/BANG/2015 & 11 TO 14/BANG/2016 (IN I.T.(I.T) A. NOS.1814 TO 1818 & 734/BANG/2013) 2. WE HAVE HEARD THE LEARNED STANDING COUNCIL AS WELL AS LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. THE REVENUE HAS STATED IN THE MISC. PETITIONS THAT GROUND NOS.4 & 6 OF THE APPEALS WERE NOT ADJUDICATED BY THE TRIBUNAL AND THEREFORE THERE IS A MISTAKE APPARENT ON THE RECORD WHICH REQUIRES TO BE RECTIFIED. THE LD. STANDING COUNSEL HAS URGED THA T THE IMPUGNED ORDER MAY BE RECALLED TO THE EXTENT OF ADJUDICATION OF GROUND NOS.4 & 6 ON THE ISSUE THAT THE ASSESSING OFFICER HAS ALTERNATIVELY TREATED THE INTERCONNECT USES CHARGES AS WELL AS BAND WIDTH CAPACITY CHARGES AS INCOME FROM OTHER SOURCES AND CONSEQUENTLY CHARGEABLE TO TAX. 3. ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL IN PARA 16 OF THE IMPUGNED ORDER BY HOLDING THAT THE REVENUE AUTHORITIES HAVE ERRED IN DRAWING TH E INFERENCE THAT WHEN THE PAYMENT IS MADE FROM INDIA, IT WOULD BE CONSTRUED THAT INCOME HAS BEEN RECEIVED, ACCRUED OR ARISEN IN INDIA. THE TRIBUNAL DID NOT AGREE WITH THIS CONCLUSION DRAWN BY THE REVENUE AND THEREFORE THIS ISSUE STANDS DISPOSED OFF. 3 M.P. NOS.73/BANG/2015 & 11 TO 14/BANG/2016 (IN I.T.(I.T) A. NOS.1814 TO 1818 & 734/BANG/2013) 4. HAVING HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE ASSESSING OFFICER HAS HELD THAT THE PAYMENTS IN QUESTION WERE INC OME IN THE HANDS OF THE RECIPIENT IN THE NATURE OF ROYALTY ALTERNA TIVELY FEES FOR TECHNICAL SERVICES ( FTS ) AND ALTERNATIVELY INCOME FROM OTHER SOURCES . ACCORDINGLY, THE ASSESSING OFFICER PASSED THE ORDER UNDER SECTION 201(1) AND 201(1A) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') HOLDING THE ASSESSEE AS THE AS SESSEE IN DEFAULT DUE TO NON - DEDUCTION OF TAX AT SOURCE IN RESPECT OF THESE PAYMENTS. THE CIT (APPEALS) CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER ON THE ISSUE THAT THE PAYMENTS IN QUESTION ARE ROYALTY AND THEREFORE DID NOT PROPOSE TO DECIDE THE OTH ER ISSUES OF FTS AND INCOME FROM OTHER SOURCES AGAINST WHICH THE REVENUE FILED THE APPEAL BEFORE THIS TRIBUNAL AND RAISED THE GROUND AGAINST THE NON - ADJUDICATION OF THE ISSUE OF FTS AND INCOME FROM OTHER SOURCES. THIS TRIBUNAL VIDE IMPUGNED ORDER CONFIRME D THE FINDING OF THE ASSESSING OFFICER AND CIT (APPEALS) THAT THE PAYMENTS ARE IN THE NATURE OF ROYALTY. AS REGARDS THE ISSUE OF FTS, THE TRIBUNAL REMITTED THE SAID ISSUE TO THE RECORD OF THE CIT (APPEALS) FOR ADJUDICATION ON MERITS. THUS THE THIRD ISSUE REGARDING THE 4 M.P. NOS.73/BANG/2015 & 11 TO 14/BANG/2016 (IN I.T.(I.T) A. NOS.1814 TO 1818 & 734/BANG/2013) INCOME FROM OTHER SOURCES AS RAISED IN GROUND NOS.4 & 6 OF THE REVENUE S APPEALS HAS NOT BEEN SPECIFICALLY ADJUDICATED BY THIS TRIBUNAL. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS CONTENDED THAT THE TRIBUNAL HAS ADJUDICATED IN PARA 16 OF THE IMPUGNED ORDER. FOR READY REFERENCE, WE REPRODUCE PARA 16 OF THE IMPUGNED ORDER AS UNDER : 16. ON AN ANALYSIS OF THE LEARNED CIT (A) S FINDINGS, WE ARE OF THE VIEW THAT THERE IS SOME AMBIGUITY OR CONFUSION IN APPRECIATING THE POSITION OF LAW. THE LEARNED CIT (A) IS RIGHT IN OBSERVING TO THE EXTENT THAT THE ASSESSING OFFICER IS RIGHT IN ARTICULATING THAT WHERE INCOME IS ACTUALLY RECEIVED OR ACCRUES IN INDIA, RESORT TO DEEMING PROVISION IS NOT WARRANTED AND IN SUCH A CASE, PROVISIONS CONTAI NED IN SECTION 5(2) IS SUFFICIENT TO CREATE A CHARGE IN RESPECT OF NON RESIDENT S INCOME. HOWEVER, WHILE DRAWING INFERENCE THAT PAYMENTS MADE BY A RESIDENT WOULD ALSO INDICATE ACCRUAL OR ARISING OF THE INCOME IN THE HANDS OF NON RESIDENT IN INDIA. IT IS PE RTINENT TO MENTION THAT SECTION 9 OF THE ACT IS A DEEMING SECTION AND IT PROVIDES FOR TAXATION OF SPECIFIED INCOME, RECEIVED BY FOREIGN TAX RESIDENT IN INDIA. IT HAS DIFFERENT SUB SECTIONS. SECTION 9(1)(I) OF THE ACT PROVIDES FOR TAXATION OF BUSINESS INCOM E OF NON RESIDENT, WHEREAS SECTION 9(1)(VI) AND 9(1)(VII) OF THE ACT PROVIDES FOR TAXATION OF INCOME IN THE NATURE OF ROYALTY AND FTS RESPECTIVELY. IN ORDER TO ASSUME ACCRUAL OR AROUSAL OF BUSINESS INCOME IN INDIA, THEN SECTION 9(1)(VI) ALONG WITH ITS EX PLANATION WOULD BE RELEVANT AND IT WOULD COME FROM THE CIRCUMSTANCES THAT NON RESIDENT CONSTITUTE A BUSINESS CONNECTION IN INDIA. IN THAT SITUATION ONLY SO MUCH INCOME SHALL BE TAXABLE IN INDIA AS IS RELATABLE TO OPERATIONS CARRIED ON IN INDIA. AS DISCUSSE D EARLIER SECTION 5(2) OF THE ACT PROVIDES THAT THE TOTAL INCOME OF A NON RESIDENT WOULD INCLUDE INCOME ACCRUES OR ARISE, RECEIVED. IN ORDER TO FULFILL THE REQUIREMENTS CONTEMPLATED UNDER THIS PROVISION, THAT SAME INCOME TO BE TAXED IN THE HANDS OF A NON R ESIDENT UNDER THE AFORESAID PROVISIONS, THEN SUCH INCOME SHOULD ACCRUE OR AROSE TO SUCH NON RESIDENT IN INDIA. BOTH THE LEARNED REVENUE AUTHORITIES HAVE CONSTRUED THAT SINCE THE PAYMENTS HAVE BEEN MADE FROM INDIA, THEREFORE, INCOME HAS ARISEN OR ACCRUED I N THE HANDS OF NON RESIDENT. THEY LOST SIGHT TO THE FACT THAT NON RESIDENT HAS NO BUSINESS CONNECTION IN INDIA. THE CONNECTIVITY SERVICES ARE PROVIDED BY THE PAYEE OUTSIDE INDIA AND ALSO UTILIZED BY THE ASSESSEE OUTSIDE INDIA. THEREFORE, TO OUR MIND, THE L EARNED REVENUE AUTHORITIES HAVE ERRED IN CONSTRUING THAT THE INCOME HAS ACCRUED OR ARISEN IN INDIA. SIMILARLY CAPACITY TRANSFER PAYMENTS ARE FOR TRANSFER OF CAPACITY BY BELGACOM OUTSIDE INDIA. THE PAYEES HAVE NOT PERFORMED ANY PART OF ITS ACTIVITIES FOR PR OVISION OF CONNECTIVITY CHARGES AS WELL AS CAPACITY TRANSFER, WITHIN INDIA. THE SITUS OF THE SOURCE OF INCOME IN RESPECT OF PAYMENT RECEIVED BY A NON RESIDENT I.E. NTOS WOULD BE THE PLACE WHERE THE NON RESIDENT CARRIES ON ITS BUSINESS AND PERFORM THE BUSIN ESS ACTIVITIES PURSUANT TO WHICH IT RECEIVED INCOME. ONCE THE SITUS IS OUTSIDE INDIA, THEN IN ORDER TO DETERMINE WHETHER THE PAYMENTS MADE BY A RESIDENT OF INDIA TO A NON RESIDENT INVOLVES ELEMENT OF INCOME IS TO BE EXAMINED U/S 9 AND IN THE PRESENT CASE, 5 M.P. NOS.73/BANG/2015 & 11 TO 14/BANG/2016 (IN I.T.(I.T) A. NOS.1814 TO 1818 & 734/BANG/2013) THE ASSESSING OFFICER HAS EXAMINED THE APPLICABILITY OF SECTION 9(1)(VI) & 9(1)(VII)I.E. THE PAYMENTS INVOLVE ROYALTY AS WELL AS FEE FOR TECHNICAL SERVICES. THE TWO JUDGMENTS RELIED UPON BY THE ASSESSEE NAMELY DECISION OF THE HON'BLE DELHI HIGH COURT IN TH E CASE OF EON TECHNOLOGIES AND THE ORDER OF THE ITAT IN THE CASE OF ADANI ENTERPRISES (SUPRA) ARE FULLY APPLICABLE ON THE FACTS OF THE PRESENT CASE. THE INFERENCE DRAWN BY THE LEARNED REVENUE AUTHORITIES THAT INCOME IS DEEMED TO BE ACCRUED OR ARISEN IN IND IA OR ACCRUED OR ARISEN OR RECEIVED IN INDIA MERELY ON THE BASIS THAT SUCH PAYMENTS WAS MADE FROM INDIA IS INCORRECT. HOWEVER, TO THE EXTENT THAT IF INCOME IS DEEMED TO ACCRUE, ARISEN OR RECEIVE IN INDIA U/S 9 IS CONCERNED, IF (SUBJECT TO OUR FINDING ON TH ESE ASPECTS), THEN IT WILL BECOME PART OF TOTAL INCOME U/S 5(2). THUS, THERE IS NO INHERENT CONTRADICTION BETWEEN BOTH THE SECTIONS, THE ONLY THING IS THAT REVENUE AUTHORITIES IN THE PRESENT CASE HAVE ERRED IN DRAWING AN INFERENCE THAT WHEN PAYMENT IS MADE FROM INDIA, IT WOULD BE CONSTRUED THAT INCOME HAS BEEN RECEIVED, ACCRUED OR ARISEN IN INDIA. TO THIS EXTENT, WE DIFFER WITH THE CONCLUSIONS DRAWN BY THE LEARNED REVENUE AUTHORITIES BELOW, BUT IT IS AN ACADEMIC ISSUE IN THE PRESENT CASE, BECAUSE ULTIMATELY , TAXABILITY WOULD BE DEPENDENT UPON OUR FINDING GIVEN U/S 9(1)(VI) AND 9(1)(VII) I.E. WHETHER THE PAYMENTS INVOLVE ROYALTY OR FTS. SO THIS GROUND OF APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THERE IS NO DISPUTE THAT APART FROM PARA 16, THERE IS NO OTHER FINDING OF THE TRIBUNAL ON THIS ISSUE RAISED IN GROUND NOS.4 & 6 OF THE REVENUE S APPEALS WHICH READ AS UNDER : 4. THE LEARNED CIT (APPEALS) FAILED TO APPRECIATE THE ORDER OF THE ASSESSING OFFICER TREATING THE INTERCONNECT USAGE CHARGES AS OTHER INCOME . THE ASSESSEE ;COMPANY ITSELF CLAIMS THAT THE INTERCONNECT USAGE CHARGES DO NOT FALL UNDER THE ARTICLE DEALING WITH BUSINESS PROFITS AND THE ARTICLE DEALING WITH ROYALTY/FTS. HENCE THE IUC IS THEN DEALT WITH BY THE ARTICLE FOR OTHER INCOME AND THEREFORE THESE CHARGES WERE TAXED AS OTHER INCOME . THE LEARNED CIT (APPEALS) ERRED IN NOT CONSIDERING THIS VIEW OF THE ASSESSING OFFICER NOTWITHSTANDING THE FACT THAT IUC WAS ALREADY HELD AS ROYALTY. 6. THE LEARNED CIT (APPEALS) FAILED TO APPREC IATE THE ORDER OF THE ASSESSING OFFICER TREATING THE BANDWIDTH CAPACITY PROVISION CHARGES AS OTHER INCOME . THE ASSESSEE COMPANY ITSELF CLAIMS THAT THE BANDWIDTH CAPACITY PROVISION CHARGES DO NOT FALL UNDER THE ARTICLE DEALING WITH BUSINESS PROFITS AND T HE ARTICLE DEALING WITH ROYALTY/FTS. THEREFORE 6 M.P. NOS.73/BANG/2015 & 11 TO 14/BANG/2016 (IN I.T.(I.T) A. NOS.1814 TO 1818 & 734/BANG/2013) BANDWIDTH CAPACITY PROVISION THEN DEALT WITHBY THE ARTICLE FOR OTHER INCOME AND THEREFORE THESE CHARGES WERE TAXED AS OTHER INCOME . THE LEARNED CIT (APPEALS) ERRED IN NOT CONSIDERING THIS VIEW OF THE ASSE SSING OFFICER NOTWITHSTANDING THE FACT THAT IUC WAS ALREADY HELD AS ROYALTY. AS IT IS CLEAR FROM THE ORDER THAT THE OBSERVATION IN PARA 16 OF THE IMPUGNED ORDER IS ONLY WITH RESPECT TO THE ISSUE OF THE NATURE OF THE PAYMENT BEING ROYALTY OR NOT. THE SAI D OBSERVATION OF THE OF THE TRIBUNAL IN PARA 16 IS ONLY ON THE ISSUE THAT ONCE THE PAYMENT IS BEING DEEMED AS INCOME ARISEN OR ACCRUED IN INDIA AS PER PROVISIONS OF SECTION 9 THEN WHETHER IT IS AN INCOME ARISEN OR ACCRUED AS PER SECTION 5 BECOME AN ACADEMI C IN NATURE AS THERE IS NO CONTRADICTION BETWEEN THESE TWO SECTIONS OF THE INCOME TAX ACT. AS A MATTER OF RECORD THE TRIBUNAL HAS ALREADY DECIDED THE PAYMENT IN QUESTION AS IN THE NATURE OF ROYALTY AND OTHER ISSUE OF FTS HAS BEEN REMANDED TO THE RECORD OF THE CIT (APPEALS). ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE OF INCOME FROM OTHER SOURCES BECOMES ACADEMIC IN NATURE HOWEVER , IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND TO PROTECT THE INTEREST OF THE PART IES IN THE EVENT UALITY OF THE REVERSAL OF THE ORDER BY THE HON'BLE HIGH COURT THIS ISSUE IS KEPT OPEN. ACCORDINGLY, WE MODIFY THE IMPUGNED ORDER AND THE 7 M.P. NOS.73/BANG/2015 & 11 TO 14/BANG/2016 (IN I.T.(I.T) A. NOS.1814 TO 1818 & 734/BANG/2013) ISSUE OF TREATING THE PAYMENTS IN QUESTION AS INCOME FROM OTHER SOURCES IN THE HANDS OF THE NON - RESIDENT RECIPIENT. 5. IN THE RESULT, TH E MISC. PETITIONS OF THE REVENUE ARE DISPOSED OFF IN THE ABOVE TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20TH DAY OF JULY, 201 6 . SD/ - ( INTURI RAMA RAO ) ACCOUNTANT MEMBER SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE